I wrote a simple server app in C which runs on localhost. How to capture localhost traffic using Wireshark?
If you're using Windows it's not possible - read below. You can use the local address of your machine instead and then you'll be able to capture stuff. See CaptureSetup/Loopback.
Summary: you can capture on the loopback interface on Linux, on various BSDs including Mac OS X, and on Digital/Tru64 UNIX, and you might be able to do it on Irix and AIX, but you definitely cannot do so on Solaris, HP-UX....
Although the page mentions that this is not possible on Windows using Wireshark alone, you can actually record it using a workaround as mentioned in a different answer.
EDIT: Some 3 years later, this answer is no longer completely correct. The linked page contains instructions for capturing on the loopback interface.